* To cull 6 million breeder chickens starting this week-sources
* Live birds on farms now selling below production costs
* Smaller poultry firms being forced out of business
JAKARTA, Sept 30 (Reuters) - Indonesia is set to cull millions of chickens to ease supply swings in the local meat market caused by a drive for self-sufficiency, the latest in a string of food policies that have backfired for the government of President Joko Widodo.
Since coming to power in October, Widodo has been pursuing food self-sufficiency to protect farmers, but the outcome has often been volatile prices and concern from investors - eroding support for the government.
A reluctance to import rice has made Indonesian wholesale prices among the most expensive in the region this year, while delays in issuing raw sugar import permits caused local refineries to close.
The troubles in the meat market began when Indonesia cut live cattle imports for the third quarter, forcing consumers to switch to poultry and pushing average local broiler chicken prices to 20,250 rupiah ($1.38) per kg at the start of September, up 15 percent from the first half average.
The spike came despite the fact that output was already outstripping demand by up to 30 percent. Prices have come down now with live birds on farms selling at about 12-18 percent below production costs.
“Our consumption is lower than production,” Srie Agustina, director general of domestic trade at the trade ministry said. “There is an oversupply. There must be a management, a control.”
To ensure stable prices, Indonesia plans to cull six million breeder chickens, starting this week, industry sources said.
“The government is the referee for this cull,” said Krissantono, chairman of the Indonesian Poultry Breeder Companies Association.
“Increasing consumption isn’t just about increasing production capacity,” added Krissantono, who uses only one name. “It’s also about whether the consumer can absorb the product. That wasn’t calculated carefully at that time.”
SMALLER BREEDERS HIT BY PRICE WAR
Lower poultry prices have pushed many smaller breeders out of business, analysts said. Bigger companies like PT Japfa Comfeed Indonesia, PT Malindo Feedmill Tbk and PT Charoen Pokphand Indonesia Tbk are better equipped to weather the storm.
“The cull is to maintain higher poultry prices as ... there was a price war due to the oversupply condition,” said research analyst Michael Setjoadi of PT Bahana Securities in Jakarta.
Currently worth more than $4 billion a year, Indonesia’s poultry demand has the potential to expand from its very low current annual per-capita consumption of just 7-10 kg, which is far behind neighbouring Malaysia’s 39 kg.
This has drawn commodities giant Cargill Inc and Indonesian food group PT Indofood Sukses Makmur Tbk into Indonesia’s poultry sector.
The country also has ambitions to become a major poultry exporter and displace Thailand as the region’s leader, but this will require sanitary standards acceptable to international buyers and lower costs.
In August, Indonesia stopped issuing import permits for corn used in feedmills as it prepared the ground for rules allowing only state procurement agency Bulog to import corn from 2016.
“These conditions create a high-cost economy that we pass on to our selling price,” said Desianto Budi Utomo, secretary general of the Indonesian Feedmills Association and director at PT Charoen Pokphand Indonesia Tbk. “These inefficiencies affect our competitiveness.” ($1 = 14,665.0000 rupiah)
Additional reporting by John Chalmers; Editing by Himani Sarkar
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